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Market News (08/31/2011)

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MADISON, Wis. (9/1/11)
* Industry estimates indicate the cost of Hurricane Irene could be $7 billion to $10 billion, making it one of the 10 most costly disasters in U.S. history, according to The New York Times (Aug. 31). Much of the damage across an unusually wide swath of the East Coast might not be covered by insurance because it stemmed from flooding, not winds. In past storms insurance typically covered half the losses, but insurers may cover less than 40% of the losses from Irene, the Kinetic Analysis Corp., told the publication. It is not clear how many buildings have flood insurance, and homeowners have higher deductibles, which could make it hard for many people to rebuild. Not only did the hurricane flood upstate New York, Vermont and New Jersey, but it flooded crops in North Carolina, hurt the shellfish industry along the Chesapeake Bay, sapped power and kept commuters from their jobs and hurt the beachfront and casino tourist industry … * The nation's mortgage applications for the week ending Aug. 26 dropped 9.6% on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The unadjusted Market Composite Index decreased 10% for the period. Refinances declined 12.2% and made up 77.8% of total mortgage loan applications, compared with 79.8% the previous week. The Purchase Index, seasonally adjusted, rose 0.9% while the unadjusted Purchase Index dropped 1.3% from the week earlier and fell 8.2% from the same week a year ago. "Accounting for the increase in average points paid, effective mortgage rates were little changed last week," said Mike Fratantoni, MBA vice president of research and economics. "Refinance application volume declined for a second week from recent highs, despite rates staying near a 10-month low, while the purchase volume remained near 15-year loans, he said. The four-week moving average for the seasonally adjusted Market Index is up 2.5%; the average is down 3.8% for seasonally adjusted Purchase Index, and up 4.2% for the Refinance Index … * Two reports released Wednesday may indicate that the U.S. unemployment outlook is improving, although the weak economy is producing few jobs. Unemployment rates for July dropped in 193 large metro areas, increased in 118 areas and stayed flat in 61, said the Labor Department. In July the U.S. economy added 117,000 jobs, and the national unemployment rate fell to 9/1%. However, the economy needs about twice that number of jobs to lower the unemployment rate with any significance (The New York Times Aug. 31). A report from Challenger, Gray and Christmas Inc. indicated that the number of people whose jobs were cut in August dropped to 51,114 after three straight months of climbing from 66,414 in July, which was driven by a handful of companies (Moody's Economy.com Aug. 31). The August pace is roughly the same as the prerecession pace but still 47% more than a year ago. The largest share of pink slips for the month was in the public sector. Government agencies and departments slashed 18,426 jobs, double their layoffs in July and nearly as many as the year's high of 19,000 jobs lost. "Government is now the drag on job growth," said Moody's … * The average chargeoff rate for bankcards in the U.S. dropped sharply in June, falling 96 basis points to 6.33% from July and bringing the rate closer to historical averages, said Fitch Ratings Inc. June recorded the second-largest monthly decline since 2005, when the Bankruptcy Reform Act took effect (American Banker Aug. 31). In May the average charge-off rate was 7.29%. The historical average for charge-offs on bankcards is 5.99%. After the recession, the charge-offs peaked at roughly 11% for first quarter 2010. Factors included the stiffer restrictions in the Bankruptcy Reform Act. In 2005, the charge-off rate dropped dramatically because more people than usual filed for bankruptcy protection before the stiffer restrictions took effect. Another factor in June's drop is consumer caution: they spent less in June and when they did so, they paid off their card balances to keep debt down, said Fitch …

News of the Competition (08/31/2011)

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MADISON, Wis. (9/1/11)
* Nevada Attorney General Catherine Cortez Masto accuses Bank of America of violating a 2008 mortgage settlement in a complaint filed Tuesday in the U.S. District Court in Reno, Nev. (The New York TimesAug. 31). Masto is asking the court to end the settlement so Nevada can proceed with a suit against BofA over allegations of deceptive lending, marketing and loan servicing practices. The complaint says the bank raised interest rates on borrowers when modifying their loans although it had promised to lower them by the terms of the settlement. The complaint documents other allegations, such as the bank’s alleged failure to provide loan modifications to eligible borrowers quickly and initiating foreclosures while modifications were pending … * A training academy supporting the U.S. and Canadian banking and payment industries’ migration to Europay, MasterCard, Visa (EMV) chip and PIN technologies has been established. Led by a group of payment industry professionals and key strategic technology partners, the EMV Training Academy offers EMV training courses, test tools and consultancy services to banks, credit unions, acquirers, issuers, card manufacturers and others. The courses cover the North American contact, contactless and near-field communication mobile payment systems markets …

FOMC minutes show some wanted stronger action

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WASHINGTON (8/31/11)--Some members of the Federal Open Market Committee (FOMC)--the fed's policymaking group--were opposed to the decision to keep the fed's target funds interest rate at record lows, according to the FOMC minutes of its Aug. 9 meeting, released Tuesday afternoon. The committee kept the fed funds rate at 0% to 0.25% and said conditions are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013 (News Now Aug. 9 and 10). Three FOMC members--Charles Plosser of the Philadelphia Fed, Richard Fisher of Dallas and Narayana Kocherlakota of Minneapolis--dissented on the decision at that meeting, saying they preferred to retain the forward guidance language employed in the June statement, the meeting's minutes said. Most committee members "agreed that the economic outlook had deteriorated by enough to warrant a committee response at this meeting," according to the minutes. "While all felt that monetary policy could not completely address the various strains on the economy, most members thought that it could contribute importantly to better outcomes in terms of the committee's dual mandate of maximum employment and price stability." The minutes noted that some members said that additional accommodation was warranted because they expected the unemployment rate to remain well above, and inflation to be at or below, levels consistent with the mandate. Those viewing a shift toward more accommodative policy as appropriate generally agreed that a strengthening of the committee's forward guidance regarding the federal funds rate, by being more explicit about the period over which the committee expected the federal funds rate to remain exceptionally low, would be a measured response to the deterioration in the outlook, said the document. "A few members felt that recent economic developments justified a more substantial move at this meeting, but they were willing to accept the stronger forward guidance as a step in the direction of additional accommodation," said the minutes. The committee discussed tools to boost the economy--including buying more government bonds. However members did not agree on the next step to take if the economy worsened. The next meeting Sept. 20-21 will be two days, instead of the one originally scheduled, to accommodate more discussion. To read the full minutes, use the link.

Market News (08/30/2011)

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MADISON, Wis. (8/31/11)
* The confidence of U.S. consumers dropped in August to 44.5--a 15-point plunge from July's 59.2 reading, which was revised from 59.5, said the Conference Board Tuesday (MarketWatch and Bloomberg.com (Aug. 30). The index of consumer confidence reading is the lowest since April 2009 and well below the 52 that economists surveyed by Dow Jones had forecast. The expectations component, which tracks expectations for economic activity over the next six months, was responsible for the decline (Moody's Economy.com Aug. 30). Consumer expectations dropped to 51.9 from a revised 74.9 (originally 75.4). The present-situation index declined to 33.3 from July's unrevised 35.7. Factors in the decline were attributed to the debt-ceiling discussions, declining home values, an unemployment rate above 9%, and volatility in the stock market. Hurricane Irene and Standard & Poor's downgrading of U.S. credit were a not factors in August's reading. Irene had not occurred yet, and weakened confidence was already underway when S&P's announced its ratings (Bloomberg.com and MarketWatch) … * Consistent with expectations, home prices in the U.S. dropped at a slower pace in the year ended in June, than they did in the 12 months preceding May, according to the S&P/Case-Shiller index of property values in 20 cities. That index fell 0.1% from May and 4.5% from June 2010. May had experienced the largest year-by-year drop since 2009, at 4.6%. Economists surveyed by Bloomberg News projected a 4.6% decline for June. While the deterioration is slowing, home owners can't expect any recovery in home values any time soon, said Bloomberg (Aug. 30). Price declines in the nation's 10 largest cities were milder, with a composite 3.8% drop from a year ago, said Moody's Economy.com (Aug. 30). Price declines ranged from 2.2% in Washington to 10.8% in Minneapolis, the only metro area to experience a double-digit since last year … * The nation is seeing a surge in multigenerational households--those with three or more generations living together. Once a common feature of life in the U.S., today's surge is driven by Hispanic and Asian families, said the U.S. Census Bureau (Bloomberg.com Aug. 30). Whether for economic reasons or cultural preferences, nearly 5.1 million multigenerational families lived together last year--a 30% increase from 2000's total of 3.9 million families. Job losses and the unaffordability of homes are two key reasons young people are living with parents. Longer life spans and growth in the Hispanic and Asian families are reasons older generations stay in the house, said the article. The trend is affecting homebuilding. Los Angeles-based KB Home said it is seeing more demand for double master suites--two large bedrooms with attached bathrooms--for parents living with adult children …

News of the Competition (08/30/2011)

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MADISON, Wis. (8/31/11)
* The trustee of a $1.75 billion mortgage pool has filed a lawsuit against Bank of America to force the bank to repurchase underlying loans because of alleged misrepresentations in how they were originated The New York Times Aug. 30). In the suit, US Bancorp claims Countrywide Financial Corp., which issued the loans, misrepresented the quality of its underwriting and loan documentation. Bank of America bought the loans in 2008. The suit says BofA is obligated to buy back all of the loans in the mortgage pool … * The Federal Deposit Insurance Corp. filed an objection to Bank of America Corp's $8.5 billion settlement of claims over losses on mortgage-backed securities. The FDIC said it does not have enough information to evaluate the settlement (Bloomberg Aug. 30). By the terms of the settlement, BofA would pay $8.5 billion to resolve legal liability tied to its 2008 purchase of Countrywide Financial Corp. Bank of New York Mellon Corp, the trustee handling the trusts, had negotiated the settlement with investors and asked a New York State state judge to approve the settlement in November. The FDIC is a receiver for failed banks …

News of the Competition (08/29/2011)

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MADISON, Wis. (8/30/11)
* Bank of America (BofA) said it will sell half its stake in China Construction Bank Corp., which will bolster BofA’s capital position (The Wall Street Journal Aug. 29). The move--long expected by analysts and investors--will result in BofA posting a $3.3 billion gain. CEO Brian Moynihan’s most recent measure to sell noncore assets allows the bank to increase capital and reduce assets, the Journal said. Those two results allow the biggest U.S bank by assets and deposits to move closer to meeting worldwide liquidity standards that take effect in the next few years, the Journal said … * Tio Networks Corp., a Vancouver, B.C.-based technology company, has created software for “reverse ATMs,” which collect money from lower-income customers of financial institutions, rather than dispensing it (American Banker Aug. 26). Of the people who use reverse ATMs, 90% are underbanked or unbanked, Tio Executive Vice President Sam Shahbazi told the Banker. Customers deposit cash in the devices to pay bills they incur from cable companies, cell-phone providers, credit card issuers, stores and utilities. Tio processes bill payments collected from customers and also writes the consumer-facing software for the machines, the publication said … * With mobile payments, consumers trust credit card providers more than FaceBook Inc. and Google Inc., according to a June Ogilvy & Mather online mobile-shopping survey of 500 U.S. consumers American Banker (Aug. 26). Consumers say they have more trust in card companies because they have provided secure payments for many years, Gareth Evan, director of digital action at the Ogilvy action unit, told the publication. As more future mobile payment applications--such as smartphones--develop secure standards the same way in which card companies did, consumers will develop more trust for them, Evan said ...

Market News (08/29/2011)

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MADISON, Wis. (8/30/11)
* U.S. consumer spending in July rose more than expected, indicating surprising strength heading into the second half of 2011 (The Wall Street Journal Aug. 29). Spending surged 0.8%--the largest gain in five months, according to Commerce Department figures released Monday. Economists were expecting spending to increase 0.5% in July, according to a Dow Jones survey. Consumer spending is key to the overall economy since it constitutes 70% of the U.S. economy, so Monday’s report has generated some optimism for an economy that has considerably weakened this year, the Journal said. The government lowered its estimate for second-quarter growth last week, saying the economy grew 1% ... * Pending homes sales--the number of contracts to purchase previously owned U.S. homes--declined in July for the first time in three months, indicating lower borrowing costs and home prices aren’t attracting buyers (Bloomberg.com Aug. 29). The index of pending home sales fell 1.3%, following a 2.4% gain in June, the National Association of Realtors said Monday. More foreclosures in the pipeline and unemployment above 9% indicate it may take years to clear a housing oversupply and that the market is having trouble stabilizing, Bloomberg said. Stricter underwriting standards and low appraisals could cause contract cancellations because some signings may not result in closings, Bloomberg said …

News of the Competition (08/26/2011)

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MADISON, Wis. (8/29/11)
* Mortgage refinancing applications in the U.S. could decline because of a seven basis-point increase in 30-year mortgage rates and a rebound in bond yields from record lows (American Banker Aug. 25). For the week ended Aug. 25, the average 30-year rate went up--in concert with higher Treasury yields and improved data related to the housing market--to 4.22% from a record low. As of late Thursday, the long-term rate-indicative 10-year Treasury yield was at roughly 2.2%, after recently dipping below 2%. The increase in rates could result in a decline for last week of about 200 points on the Mortgage Bankers Association’s conventional refinancing index when it comes out Wednesday, according to a Credit Suisse report issued Thursday morning … * The Federal Housing Administration’s policy decision to extend to 12 months the forbearance period for unemployed homeowners is causing the Mortgage Bankers Association to be flooded with member complaints (American Banker Aug. 25). The new policy went into effect Aug. 1 and increases forbearance period expenses another eight months. Servicers of Government National Mortgage Association mortgage-backed securities already are mandated to advance the principal and interest payments of bond investors as well as pay taxes and homeowner’s insurance, if necessary, during a four-month forbearance period ... * The Small Business Lending Fund (SBLF) has given First Busey Corp. in Champaign, Ill., a $72.6 million award--the largest since the Treasury Department began disbursing funds to community banks in July (American Banker Aug. 25). About 90 banks have received low-interest loans from the $30 billion SBLF. Just as First Busey used the funds to pay off the balance of the $100 million it owed the Treasury for participating in the Troubled Asset Relief Program (TARP), many banks have employed their awards to pay off TARP debt, the Banker said ... * Erply Ltd., an Estonian point-of-sale and retail inventory management software provider, Tuesday announced the availability of a new mobile credit card reader in the U.S. (American Banker Aug. 25). The reader will accept magnetic stripe cards for payment. The European startup company said it is not worried that the U.S. move to Europay, MasterCard and Visa (EMV) cards--a global standard for inter-operation of integrated circuit cards--will hurt merchant interest in the device, the Banker said …

Market News (08/26/2011)

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MADISON, Wis. (8/29/11)
* The U.S. economy grew slightly less than previously estimated in the second quarter, capping the weakest six months of the recovery that started in mid-2009. Business inventories and weaker exports were factors (The New York Times and Bloomberg.com Aug. 26). Gross domestic product increased at annual rate of 1%--a downward revision of its 1.3% previous estimate, the Commerce Department said Friday. In the face of high unemployment and rising costs, consumers have cut back on spending--especially at the gasoline pump, although gas prices have eased in recent weeks (The Wall Street Journal Aug. 26). With the economy weaker than anticipated, consumers are not ready to buy, Robert Brusca, chief economist at Fact & Opinion Economics in New York, told Bloomberg, adding the U.S. economy appears to be losing steam, and international trade indicates weaker business conditions abroad … * Sales of distressed homes--those in some stage of foreclosure or repossession--constituted 31% of second-quarter home sales--a slight dip from first quarter, according to RealtyTrac Inc. data released Thursday (American Banker Aug. 25). However, despite quarter-over-quarter improvement, the Banker said housing sector conditions could be worsening because distressed home sales in second quarter 2010 were 24% of overall home sales … * The Economic Cycle Research Institute (ECRI) weekly index--which measures economic growth--fell to 122.8 for the week ended Aug. 19 from a revised 123.8. The smoothed, annualized growth rate dropped to -2.1% from an unrevised -01%. The index has decreased for three consecutive weeks--diminishing optimism that conditions are in place for an upswing, ECRI said. Risks to an economic recovery still remain substantial, ECRI added …

News of the Competition (08/25/2011)

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MADISON, Wis. (8/26/11)
* Berkshire Hathaway Inc., headed by Warren Buffett, will invest $5 billion into Bank of America (BofA)--giving the struggling bank a vote of confidence amid questions about its management (The New York Times DealBook and The Wall Street Journal Aug. 25). Berkshire will purchase 50,000 preferred shares that will pay a 6% annual dividend, with BofA having the option to buy back the shares at any time for a 5% premium, the Times said. Berskhire’s investment should bolster market concerns about BofA, which has seen its stock fall 30% since the beginning of August--mainly over worries the bank lacks sufficient capital, the Times said … * Reduced debit card interchange fees set to take effect in October as a result of an amendment to the Dodd-Frank Act are leading more banks to consider combining debit and credit cards into a hybrid (American Banker Aug. 24). The fee cap could reduce revenue for big banks by as much as $6.6 billion annually, according to a Javelin Research and Strategy report. The fee caps aim to lower costs that merchants pay to accept debit cards. CUNA has called on Congress to “Stop, study and start over” on the interchange proposal, and to ensure that a planned interchange exemption for credit unions and other small issuers with under $10 billion in assets would work as planned. Fifth Third Bancorp Wednesday announced a hybrid debit-credit card primarily marketed to existing customers … * Capital One Financial Corp. is the most recent bank to launch another rewards card this summer aimed at wealthy customers (American Banker Aug. 24). However, the Capital One Cash card is unique in that it requires cardholders to stay on for at least a year to earn all of the promised rewards, the Banker said. Cardholders will earn 1.5% back on purchases if they use the card for at least a year--after initially receiving 1% cash refunds on spending … * This week’s resignation of Apple Computer’s CEO Steve Jobs could have an impact on financial institutions’ mobile payments (American Bankers Aug. 24). Regarding its mobile payments plans, Apple’s patents permit it to proceed without the participation of banks--whether the technology is based on near field communication chips or some other technology, the Banker said. Apple has been mostly secretive about its payments-methods plans. If the company changes it policies as a result of change in top management, the changes in Apple’s payments strategy likely will proceed slowly, the Banker said ...

Market News (08/25/2011)

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MADISON, Wis. (8/26/11)
* Initial claims for U.S. unemployment benefits unexpectedly increased last week, partially caused by a labor dispute at Verizon Communications Inc. (Bloomberg.com and The Wall Street Journal Aug. 25). Claims rose 5,000--to 417,000--for the week ended Aug. 20, the Labor Department said Thursday. Economists had projected a decline to 405,000, according to a Bloomberg News survey. A strike by Verizon workers added at least 8,500 new claims last week, and 12,500 claims for the week ended Aug. 13, inflating the national total of claims, a Labor Department economist told the Journal. Layoffs have not been the problem during the past year-and-a-half to two years. Instead the normal pace of hiring that usually accompanies an economic recovery has not occurred, Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn., told Bloomberg. Meanwhile, continuing claims for unemployment benefits for the week ended Aug. 13 dropped 80,000--to 3.63 million--the biggest week-over-week decline since February. The decline places claims at their lowest level since 2008 (Moody’s Economy.com Aug. 25) ... * U.S. consumer confidence increased for the second consecutive week, according to the Bloomberg Consumer Comfort Index (Moody’s Economy.com Aug. 25). Sentiment rose 1.3 points to -47 for the week ended Aug. 1 from the prior week. Better perceptions of the state of the economy and personal finances drove the improvement, Bloomberg said. Perceptions of the buying climate inched downward. Sentiment increased across all regions of the U.S. ...

News of the Competition (08/24/2011)

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MADISON, Wis. (8/25/11)
* WikiLeaks’ five-gigabyte hard drive that contained damaging information about Bank of America (BofA) apparently no longer exists. It was allegedly destroyed by Daniel Domscheit-Berg, former associate of WikiLeaks founder Julian Assange, following an argument with Assange (American Banker Aug. 23). The files purportedly revealed corruption at a “major” bank. The documents have never been released or confirmed, and therefore require a lot of assumptions, the Banker said. In a separate matter, anxiety over BofA’s credit worthiness hit an all-time high, even though analysts say the bank is much more financially stable than it was before the 2008 financial crisis (The Wall Street Journal Aug. 24). The cost of insuring BofA’s bonds against default jumped to $435,000 per year for five-year protection on $10 million in debt, according to Markit Group data ... * A payday loan company filed for an initial public offering (IPO) this week (American Banker Aug. 23). Community Choice Financial, based in Dublin, Ohio, which offers check-cashing services, prepaid debit cards and short-term loans to low-income customers, has filed for a $230 million IPO, saying it wants to raise funds to pay down debt or make acquisitions. Community Choice is backed by New York private equity fund Diamond Castle Holdings LLC--the alternative lender’s primary sponsor …

Market News (08/24/2011)

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MADISON, Wis. (8/25/11)
* Because the effects of the recession are persisting, the U.S. economy will face another large budget deficit in 2011, the Congressional Budget Office (CBO) forecast Wednesday (The Wall Street Journal Aug. 24). The deficit is projected to be $1.3 trillion in the fiscal year ending Sept. 30, down from $1.4 trillion forecast in April, because of cuts in federal spending, the CBO said (Bloomberg.com Aug. 24). Fiscal 2011 will mark the third consecutive year of deficits above $1 trillion. As the economy improves, deficits will continue to shrink slowly, the CBO said, adding that unemployment will stay above 8% until 2014. The CBO also projected the deficit for the 12-month period through Sept. 30, 2012, to be $973 billion instead of the $1 trillion forecast in April … * Mortgage loan application volume declined 2.4% for the week ended Aug. 19 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index decreased 2.9%. The Refinance Index dropped 1.7%. The seasonally adjusted Purchase Index fell 5.7% and is at its lowest level since December 1996. The unadjusted Purchase Index went down 7.3% and was 7.3% lower than the same week one year ago. “Another week of volatile markets and rampant uncertainty regarding the economy kept prospective homebuyers on the sidelines, with purchase applications falling to a 15-year low,” said Mike Fratantoni, MBA vice president of research and economics. “This decline impacted borrowers across the board, with purchase applications for jumbo loans falling by more than 15%, and purchase applications for the government housing programs falling by 8.2%. Although mortgage rates remain quite low, they increased over the week, bringing refinance application volumes down slightly.” For the MBA report, use the link … * Overall orders for U.S. durable goods increased 4% in July--the largest increase since March, the Commerce Department said Wednesday (The New York Times Aug. 24). Demand for autos and auto parts leapt 11.5%--the biggest gain in eight years. Aircraft orders--a volatile sector--surged 43.4%, following a 24% drop in June. Excluding transportation goods, orders increased 0.7% in July. The July improvement seems to be narrowly based, and it will be awhile before businesses find a comfort level in investing and hiring, Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pa., told Bloomberg (Aug. 24) ...

News of the Competition (08/23/2011)

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MADISON, Wis. (8/24/11)
* The number of U.S banks on the federal government’s “problem list”--which indicates those institutions most at risk of failure--declined in the second quarter. It was the first decrease since before the start of the financial crisis, according to data from the Federal Deposit Insurance Corp (FDIC) (The New York Times and The Wall Street Journal Aug. 23). At the end of June, 23 lenders came off the list, reducing the total to 865 from 888 at the end of April, FDIC said. There are 7,513 U.S. banks. Although not all banks on the list will fail, FDIC considers them most at risk--making the quarterly update one the truest gauges of the health of the banking industry, the Times said ... * California community groups are protesting Capital One Financial Corp.’s planned acquisition of ING Direct, claiming the two banks have not done enough to help low-income communities in the state, which has accounted for a large portion of their profits (American Banker Aug. 23). California Reinvestment Coalition members in a Monday press release demanded that the Federal Reserve conduct hearings on the planned merger in California to provide a forum for their grievances. The coalition said that more than 10% of Capital One’s credit card lending and about the same amount of ING’s deposits are in California. However, because the banks do not have branches in the state, they have been absolved of any Community Reinvestment Act responsibilities, the coalition said … * American Express Co. has introduced a new business credit card that will place more emphasis on small-business ad spending (American Banker Aug. 23). Amex said Monday it plans to market the card mostly to companies that advertise or intend to advertise their products or services online. About 75% of business owners recently surveyed said they expect to do some form of online marketing in 2011, Amex said. Users of the new card will obtain double rewards for advertising, gas and shipping expenses, and triple rewards for airline purchases ...

Market News (08/23/2011)

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MADISON, Wis. (8/24/11)
* New U.S. home sales in July fell to the lowest level in five months--a sign the housing industry is struggling to find equilibrium two years into the economic recovery (Bloomberg.com Aug. 23). Purchases declined 0.7% to a 298,000 annual pace, following a 300,000 pace in June that was slower than initially estimated, the Commerce Department said Tuesday. Economists had forecast a 310,000 rate in July, according to a Bloomberg News survey. Builders are not as likely to begin new projects when competition exists from less-expensive existing homes and the likelihood of foreclosures pushing more unsold properties on the market, Bloomberg said. Even though mortgage rates are at a record low, an unemployment rate above 9% and limited growth in employment could continue to dampen the housing recovery, Bloomberg said. Also, the months of inventory is at 6.6--roughly the same since April (Moody’s Economy.com Aug. 23) … * U.S. mass layoffs events--involving at least 50 workers from a single establishment--and the number of employees impacted rose slightly in July from June, according to the Bureau of Labor Statistics (Moody’s Economy.com Aug. 23). The number of mass layoffs increased to 1,579 in July, from 1,532 in June. The July layoffs involved 145,000 employees, compared with 143,444 in June. The uptick in the number of events and employees affected is not a cause for concern, but does indicate that labor markets are in the process of a slow turnaround, Moody’s said … * Credit card chargeoff rates are on pace to finish 2011 below their levels when the recession began (American Banker Aug. 23). Earlier this month, Moody’s Investors Service said its index of securitized card loans between 30 days and 59 days overdue reached an all-time low in July at 83 basis points. The chargeoff rate--weighted according to the size of the issuers’ portfolios--would average about 4.7% in December--below the 5% posted by Moody’s chargeoff index for November 2007--just before the start of the recession. In related matter, the national delinquency rate for outstanding home mortgages in the second quarter inched up to 8.44%--indicating that about $793.4 billion of residential loans are 30 days or more past due, according to the Mortgage Bankers Association (MBA). However, MBA said the number of residential loans entering foreclosure is dropping, with no evidence that a backlog is mounting that could suddenly deluge the market (American Banker Aug. 23) …

News of the Competition (08/22/2011)

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MADISON, Wis. (8/23/11)
* The Federal Deposit Insurance Corp. (FDIC) announced Friday it closed three banks, bringing total bank failures so far this year to 68, compared with 157 for the entire year in 2010. The three failed banks are: Lydian Private Bank, Palm Beach, Fla., assumed by Sabadell United Bank, N.A., Miami; First Southern National Bank, Statesboro, Ga., assumed by Heritage Bank of the South, Albany, Ga.; and First Choice Bank, Geneva, Ill., assumed by Inland Bank & Trust, Oak Brook, Ill. The closures were just one day after FDIC made a rare Thursday closure announcement on a fourth bank (News Now Aug. 20). The closed banks held roughly $2 billion in assets as of June 30. The FDIC estimated the newest failures will cost the Deposit Insurance Fund about $364 million ... * Bankcard origination levels continue to grow steadily--but at a measured pace, according to Equifax’s July National Credit Trends Report. The year-over-year (YOY) total number of new bankcards issued has increased by 27% (May 2010 vs. May 2011). During January through May 2011, nearly 15 million new bankcards were issued. That represents a three-year high, but is still roughly half of the 28.5 million bankcards originated pre-recession during the January through May 2007 timeframe. Notable within the data is the rebound in the number of bankcard originations to subprime borrowers (those with credit scores less than 660), with a nearly 60% increase in originations for May 2011 vs. May 2010 alone, the report said. New subprime bankcard origination levels for January through May are up 65% over 2010 levels. That compares with a 63% YOY decrease for the same period from 2008 to 2009. Total new bankcard limits also have risen, with increases of more than 27% (January through May 2011), and new subprime bankcard credit limits rose 68% ...

Market News (08/22/2011)

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MADISON, Wis. (8/23/11)
* Delinquencies for U.S. mortgage loans on one-to-four-unit residential properties rose at the end of second quarter to a seasonally adjusted 8.44% of loans outstanding--an increase of 12 basis points from first quarter, and a decrease of 141 basis points from one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 32 basis points to 8.11% this quarter from 7.79% last quarter. The delinquency rate includes loans that are at least one payment past due, but not in the foreclosure process. “While overall mortgage delinquencies increased only slightly between the first and second quarters of this year, it is clear that the downward trend we saw through most of 2010 has stopped,” said Jay Brinkmann, MBA chief economist. “Mortgage delinquencies are no longer improving and are now showing some signs of worsening.” For the MBA report, use the link … * U.S. retailers’ second-quarter earnings had the slowest growth since the last recession, which is causing retailers to prepare for a weakened second half 2011 because of the unstable stock market and the possibility of more consumers losing their jobs (Bloomberg.com Aug. 22). For 43 retailers in the Standard & Poor’s 500 Index, second-quarter earnings per share increased an average of 11%--the slowest rise in eight quarters, according to Bloomberg data. As the stock mark falls, wealthier shoppers may cut back on luxury purchases, analysts said. There are a lot of potential problems down the road, and outside factors such as stock market volatility, political unrest and other events that strongly influence consumer confidence, Bernard Sosnick, an analyst at Gilford Securities in New York, told Bloomberg

Recovery in a soft patch CUNA says

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MADISON, Wis. (8/22/11)--The economy is going through a "soft patch," but will continue to recover, a Credit Union National Association senior economist told Investor's Business Daily (Aug. 18) in an article on rising recession fears that was picked up by Yahoo! Finance. "Even before the debt ceiling moved front and center, there was great uncertainty in the marketplace," Mike Schenk, CUNA's vice president of economics and statistics, said in his analysis. "The data we've received recently have served to heighten those concerns," he added. "We do continue to think this is a soft patch and we'll continue to work our way out of it, but slowly," Schenk told the publication. The article was "slew of bad U.S. economic data and the renewed fears about Europe" that has intensified concerns the economy may be falling into a recession. To access the full article, use the link.

News of the Competition (08/19/2011)

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MADISON, Wis. (8/22/11)
* The Federal Deposit Insurance Corp. (FDIC) announced Thursday it closed one bank, bringing total bank failures so far this year to 65, compared with 157 for the entire year in 2010. Public Savings Bank, Huntingdon Valley, Pa., was assumed by Capital Bank, N.A., Rockville, Md. The closed bank held roughly $47 million in assets as of June 30. The FDIC estimated the newest failure will cost the Deposit Insurance Fund about $11 million ... * Bank of America Corp. (BofA)--the largest U.S. bank by assets--is poised to shed 3,500 jobs this quarter, and is putting together a broader company restructuring that could eliminate thousands of additional jobs. The bank looks to cut costs amid increasing shareholder dissatisfaction (The Wall Street Journal and The New York Times Aug. 19). The 3,500 positions to be eliminated are spread throughout BofA, including investment banking and trading, with the completion of the cuts expected by the end of September. BofA has already notified some employees, the Journal said. In a related matter, CitiGroup Inc. and JPMorgan Chase & Co. reduced their U.S. growth forecasts because the worldwide economy is slowing, and officials are struggling to halt Europe’s sovereign-debt crisis (Bloomberg.com Aug. 19). Citigroup cut its domestic growth forecast for this year to 1.6% from 1.7%, and lowered its forecast for 2012 to 2.1% from 2.7%, according to a client note. JPMorgan said the nation’s gross domestic product will expand 1% in the fourth quarter instead of the 2.5% previously forecast, and 0.5% in the first quarter 2012 rather than 1.5%, a client note said … * Citing data breaches at unidentified retailers, Bank of America Corp. (BofA) and Citigroup Inc. closed some of their card customers’ accounts and reissued new cards last week (American Banker Aug. 19). It was not certain if a security breach at the same merchant affected both banks’ customers. BofA sent some customers new debit cards last week “after accounts may have been compromised at a merchant,” Bloomberg reported Thursday. Citigroup deactivated some credit cards Thursday and told impacted customers that it had been notified of a security breach at a retailer, according to a customer whose credit card was deactivated ...

Market News (08/19/2011)

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MADISON, Wis. (8/22/11)
* The probability that the U.S. economy will be in recession in six months rose to 31% in July from 26% in June because the economy has experienced a significant “reversal of fortune,” according to Moody’s Economy.com (Aug. 19). A decrease in residential housing permits and equity prices pushed the risk of recession higher, Moody’s said. However, it added it does not expect the U.S. economy to slide back into a recession. Real gross domestic product is forecast to grow an annualized rate near 2% during the second half of 2011. In a related matter, the Economic Cycle Research Institute (ECRI) weekly index--which measures economic growth-- fell to 123.9 for the week ended Aug. 12 from a revised 127.6 the prior week. The smoothed, annualized growth rate dropped to 0.1% from a revised 1.5%. The ECRI index has declined two consecutive weeks, further diminishing optimism that conditions are adequately in place for improvement and subsequent economic recovery, ECRI said … * To help compensate for higher labor costs, U.S. retailers and restaurants are raising consumer prices. Second-quarter labor costs rose the most in nearly three years (Bloomberg.com Aug. 19). During the past year, 53% of these companies with annual sales of $10 million to $500 million have increased their prices--up from 32% a year ago, according to a Barlow Research Associates quarterly survey. This price increase comes as U.S. inflation in July--excluding food and energy costs--picked up at an annual rate of 1.8%--the largest gain in more than a year, the Labor Department said Thursday. In a related matter, the consumer price index jumped 0.5% in July--more than reversing June’s 0.2% decline, according to the Bureau of Labor Statistics (Moody’s Economy.com Aug. 18). An escalation in food price inflation and a steep rebound in the energy index accounted for the July increase, Moody’s said …

Market News (08/18/2011)

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MADISON, Wis. (8/19/11)
* Existing-home sales in the U.S. declined in July from an upwardly revised June pace but are notably higher than a year ago, according to the National Association of Realtors (NAR). Total existing-home sales--which are completed transactions that include single-family, townhomes, condominiums and co-ops--fell 3.5% to a seasonally adjusted annual rate of 4.67 million in July from 4.84 million in June. However, sales are 21% above the 3.86 million unit pace in July 2010, which was a cyclical low immediately after the home-buyer tax credit expired. Monthly gains in the Northeast and Midwest were offset by declines in the West and South. Lawrence Yun, NAR chief economist, said there is a tug and pull on the market. “Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” he said. “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs.” For the NAR report, use the link … * Initial U.S. claims for unemployment benefits last week rose more than expected, indicating the labor market still is struggling two years into the economic recovery ( Bloomberg.com Aug. 18). Claims increased 9,000--to 408,000--for the week ended Aug. 13, the highest in a month, the Labor Department said Thursday. Economists had predicted claims would climb to 400,000, according to a Bloomberg News survey. Uncertainty in the economic outlook is keeping businesses from expanding, and people still are getting laid off, David Semmens, a U.S. economist at Standard Chartered Bank in New York, told Bloomberg. To attain a healthy labor market, there still is a long way to go, he added. Meanwhile, continuing claims for unemployment benefits for the week ended Aug. 6 rose to 3.702 million from 3.695 million the prior week (Moody’s Economy.com Aug. 18) … * Following three consecutive weekly declines, U.S. consumer confidence for the week ended Aug. 14 began to firm up, according to the Bloomberg consumer comfort index (Moody’s Economy.com Aug. 18). Sentiment climbed 0.8 points, to -48.3. Better perceptions of the buying climate drove the improvement. However, the personal finances and state of the economy components dipped lower, Bloomberg said. In a related matter, the Conference Board index of leading economic indicators increased 0.5% in July--exceeding expectations (Moody’s Economy.com Aug. 18). The leading index’s increase is consistent with the Conference Board’s expectation for a continuing recovery in the second half of this year …

News of the Competition (08/18/2011)

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MADISON, Wis. (8/19/11)
* Joining a growing number of banks that are introducing or testing a monthly fee for debit cards, Wells Fargo & Co. announced it will charge a $3 fee for debit and ATM card purchases as of Oct. 14 in several states. It will not charge for ATM use (Dow Jones Newswires via The Wall Street Journal Aug. 17). Wells Fargo--the second largest U.S. bank by deposits--just as with other banks--is looking to make up revenue lost to debit-card regulatory restrictions, Dow said. The fee is a pilot program, and the bank said it will monitor how people respond. Other banks considering or testing similar fees include Bank of America, J.P. Morgan Chase & Co. and TCF Financial Corp. … * U.S. mortgage rates fell to the lowest level in more than 50 years because demand for bonds that guide home loans increased, according to Freddie Mac. The demand is based on worries that the worldwide economic recovery is sputtering (Bloomberg.com Aug. 18). The average 30-year fixed-rate loan declined to 4.15% in the week ended Aug. 18 from 4.32% the prior week, Freddie said Thursday. The average 15-year rate dropped to 3.36% from 3.5%. The decline comes after a dip in yields for 10-year Treasury notes--a benchmark for consumer debt including mortgages, Bloomberg said … * Despite lower balances and higher loss rates, private-label credit cards--used at specific retailers--are making a rebound, because issuers are looking for loan growth wherever they can find it (American Banker Aug. 17). Private-label vital statistics are improving--mostly tracking with a huge rebound in the performance of general-purpose cards, the Banker said. The percentage of retail card balances paid off each month--a sign of borrowers’ ability to handle their debts--has risen along with the payment for general purpose cards, the publication said. Also, the annual charge-off rate for securitized retail-card receivables has declined four percentage points from a peak in February 2010 to 9.5% in June, according to Fitch Inc. data ...

News of the Competition (08/17/2011)

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MADISON, Wis. (8/18/11)
* Big U.S. banks are wholeheartedly objecting to the risk-retention proposal that Congress is considering and not just “qualified residential mortgages” (American Banker Aug. 16). The banking industry is coming out against nearly all parts of the plan--including how key terms are defined, what asset classes it would cover, and other provisions bankers say are unworkable. If the plan is not changed, it could ruin the securitization market, bankers say. Barclays Capital, Bank of America, Citigroup Inc., Wells Fargo &Co., Redwood Trust Inc., Deutsche Bank AG and Genworth Financial were among large financial institutions that wrote a 222-page letter saying the plan could hurt an already shaky housing market. They implored regulators to proceed cautiously before issuing a final rule, the Banker said … * JPMorgan Chase & Co. analysts say U.S. home prices will fall another 5% in 2011 and then bottom out in early 2012 in a “best case” situation--based on the assumption that home sales will rise in the second half of this year (American Banker Aug. 16). However, several factors--such as high unemployment, stringent lending, the economic slowdown and the glut of homes in the foreclosure process--are placing a dark cloud over the housing market, John Sim, JPMorgan Chase fixed-income strategist, told the Banker … * Kennesaw State University (KSU), located north of Atlanta, has partnered with mobile money start-up TreasureCom to create and market banking applications for mobile phones. It also formed an alliance with Microsoft to develop a lab where the mobile applications can be developed (American Banker Aug. 16). KSU professors and students will develop the mobile-phone applications at the university’s new incubator--the International Center for Innovation in Technology. The applications will include activities such as transferring money to a debit card, receiving funds from a bank account, or getting paid over a mobile phone …

Market News (08/17/2011)

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MADISON, Wis. (8/18/11)
* U.S. mortgage loan applications increased 4.1% for the week ended Aug. 12 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index rose 3.6% but was 13.5% lower than a year ago. The Refinance Index climbed 8%, but was 16.3% lower than the same week last year. The seasonally adjusted Purchase Index decreased 9.1% from one week earlier. The unadjusted Purchase Index declined 10.1% and was 1.1% lower than the same week one year ago. “Unprecedented volatility in the stock market last week amid additional signs that the economy has slowed led to further drops in mortgage rates, with the 15-year rate reaching a new low for the MBA survey,” said Mike Fratantoni, MBA vice president of research and economics. “Purchase application activity fell sharply over the previous week, likely the result of potential homebuyers hesitant to purchase in this highly volatile and uncertain environment.” For the MBA report, use the link ... * Wholesale costs (U.S. producer prices) increased in July with higher prices for pharmaceuticals, tobacco and trucks--even as energy prices fell, leaving the Federal Reserve less able to ease credit (Bloomberg.com and The Wall Street Journal Aug. 17). The producer price index--which measures how much manufacturers and wholesalers pay for goods and materials--climbed a seasonally adjusted 0.2%, following a 0.4% drop in June, according to a Labor Department report released Wednesday. Excluding volatile food and energy prices, the so-called core measure in July rose 0.4% --the most since January. Led by falling food and petroleum prices, the report indicated the cost of crude goods declined in July for a third consecutive month. In a related matter, U.S. import prices increased 0.3% in July, following a downwardly revised 0.6%--previously 0.5%-- drop in June (Moody's Economy.com Aug. 16) …

CUNA analysis in IThe StreetI No housing turnaround soon

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NEW YORK (8/17/11)--With potential home buyers remaining cautious, home inventories staying high and building activity still sluggish, the housing market won't recover anytime soon, according to analysis provided by Credit Union National Association's senior economist for The Street.com Tuesday. Mike Schenk, CUNA's vice president of economics and statistics, told the publication the current homebuilding level is "severely depressed." According to data released Tuesday, July housing starts were at a seasonally adjusted annual rate of 604,000. He that as far back as the 1960s, annualized historical housing starts have averaged about 1.5 million. July's rate was around 10% higher than year-earlier levels. "Unfortunately none of the data we see suggest that there will be a significant turnaround anytime soon," he told the publication. "While mortgage interest rates are near all-time lows and housing affordability is near all-time highs, consumers remain cautious, builders remain dejected" and permit activity "suggests very little new construction on the horizon," Schenk said. He expects softness in the housing market to persist. He attributed the housing market weakness to "extreme and prolonged weakness in labor markets." The true unemployment rate, which includes the underemployed and part-time workers looking for full-time work--is near 16%, he said. The glut of empty homes on the market totals about two million homes, while "shadow inventory," or homes kept off the market because they likely won't sell, adds another two million to 2.5 million vacant homes. Significant foreclosure activity also is working through the system, "all of which bodes ill for the notion of a quick housing market recovery." To read the entire article based on Schenk's analysis, use the link.

News of the Competition (08/16/2011)

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MADISON, Wis. (8/17/11)
* Allstate Insurance Co. is looking to recover investment losses on residential mortgage-backed securities by filing a lawsuit Monday against Goldman Sachs Group Inc. in New York State Supreme Court (propertycasualty360.com Aug. 16). The suit alleges that the roughly $123 million in securities it bought from Goldman from April 2006 to March 2007 were sold fraudulently. Allstate said that Goldman employees called the mortgage-backed securities “crap,” “dogs,” “junk” and “lemons”--characterizations made public in government investigations, the compliant stated. Goldman was cognizant of the poor quality of many of the loan pools and the bank knew there were likely to be very high rates of default, according to an April 2011 report by the U.S. Senate permanent subcommittee on investigation, Allstate alleged in the complaint … * To keep pace with aggressive rival Google, telecommunications consortium ISIS--comprising AT&T, T-Mobile and Verizon--is creating a wider range of mobile capabilities (American Banker Aug. 15). ISIS is licensing a mobile development kit from C-SAM’s--a mobile application provider--in attempts to build out added payments, coupons, rewards, ticket, transit and other mobile payments services that can be offered by consortium participants, the Banker said … * A federal appeals court upheld a finding Tuesday by a trustee on how funds recovered for victims of convicted Ponzi scheme operator Bernard Madoff should be distributed (The Wall Street Journal Aug. 16). The U.S. Second Court of Appeals upheld court-appointed trustee Irving Picard’s determination that a group of victims dubbed “net winners” weren’t entitled to a recovery because they withdrew more money than they originally invested in Madoff’s firm. The court said Picard’s determination of how money should be distributed under the Securities Investor Protection Act was “legally sound” …

Market News (08/16/2011)

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MADISON, Wis. (8/17/11)
* Fitch Ratings Tuesday affirmed the U.S.’ AAA credit rating, highlighting the nation’s continuing role as the leader of the worldwide economy (The Wall Street Journal Aug. 16). The affirmation is an indication of many aspects of U.S. creditworthiness Fitch considers unchanged--including a key role in the global financial system and its diversified economy, the credit rater said. The nation’s economic fundamentals, including the global reserve currency status of the U.S. dollar, still are very strong, David Riley, Fitch head of government ratings, told the Journal. Also, the U.S. isn’t materially weaker than some other countries that have AAA ratings, he added. Fitch’s affirmation follows the U.S. government’s downgrade earlier this month by rival ratings agency Standard & Poor’s Ratings Service ... * U.S. industrial production in July increased at its fastest pace in seven months because automobile output strongly bounced back, further allaying worries the economy could slide into a recession, the Federal Reserve said Tuesday (The New York Times Aug. 16). Industrial production advanced 0.9% in July, according to the Fed’s Industrial Production and Capacity Utilization report. Although the index was revised down in April, primarily as a result of a downward revision to the output of utilities, stronger manufacturing output led to upward revisions to production in both May and June. Manufacturing output rose 0.6% in July, as the index for motor vehicles and parts jumped 5.2% and production elsewhere moved up 0.3%. The output of mines advanced 1.1%, and the output of utilities increased 2.8%, as the extreme heat during the month boosted air conditioning use. At 94.2% of its 2007 average, total industrial production for July was 3.7 percentage points above its year-earlier level. The capacity utilization rate for total industry climbed to 77.5%, a rate 2.2 percentage points above the rate from a year earlier, but 2.9 percentage points below its long-run (1972--2010) average. For the Fed report, use the link … * Credit card late payments in the U.S. hit a 17-year low in the second quarter because card users are working to keep their accounts in good standing (ABC News Aug. 16). The rate of payments 90 days or more past due--known as the national credit card delinquency rate--dropped 0.6%, down from 0.92% a year ago. That constitutes the lowest rate since 1994, said TransUnion, a credit reporting agency ...

CUNA on Dows wild week Could be a turning point

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NEW YORK (8/16/11)--Last week’s wildly volatile ups and downs on the Dow Jones Industrial average could mark a turning point for the U.S. economy, a Credit Union National Association (CUNA) economist told the The Associated Press Friday. Last Friday culminated a week in which the Dow had four consecutive 400-point swings for the first time in the blue-chip stock index’s 115-year history. “We are at a turning point,” Bill Hampel, CUNA chief economist, told the AP Friday. “If the stock market continues to be volatile next week, I would expect a pretty serious effect on consumer confidence.” Responding to a wide range of economic news, the Dow last week fell 634 points Monday, Aug. 8--its sixth-worst point drop ever, rose 429 points Tuesday, plummeted 519 points Wednesday, and then jumped 423 points Thursday. The article was carried in news media around the world, including CBS News, The Detroit News, Chicago Herald-Tribune, Pittsburgh Tribune-Review, San Francisco Chronicle, Toledo Blade, Canada’s the Globe and Mail, New Zealand Herald, Kuwait Times, The Malta Independent Journal, Sky News Australia and the Brisbane (Australia) Times. To read the article, use the link.

News of the Competition (08/15/2011)

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MADISON, Wis. (8/16/11)
* The Federal Deposit Insurance Corp. (FDIC) announced Friday the closing of one bank, bringing total bank failures so far this year to 64, compared with 157 for the entire year in 2010. The failed bank is First National Bank of Olathe, Kan., assumed by Enterprise Bank & Trust, Clayton, Mo. The closed bank held roughly $538.1 million in assets as of June 30. The FDIC estimated the newest failure will cost the Deposit Insurance Fund about $117 million ... * Two U.S. banking companies--Ameriserv Financial Inc. in Johnstown , Pa., and Community Partners Bancorp in Middletown, N.J.--Friday announced they have been approved to participate in the Small Business Lending Fund (SBLF) and intend to use the funds to exit the Troubled Asset Relief program (TARP) (American Banker Aug. 15). Ameriserv said it received $21 million from the SBLF, which it used for repurchasing a similar amount of outstanding preferred shares connected to TARP. Community Partners said it would repurchase roughly $9 million in preferred stock associated with TARP after receiving $12 million from the SBLF … * Banks are under strong pressure to grow, but the Dodd-Frank Act makes it difficult by requiring banks with assets of $50 billion or more--dubbed systemically important financial institutions--to hold additional capital and submit to more stringent regulation, analysts said (American Banker Aug. 15). A further complication is the rules are not yet finished, the Banker said. The uncertainty caused by the situation could create a dead zone of merger and acquisition activity, the Banker said ... * Bank of America (BofA) Monday agreed to sell off its $8.6 billion Canadian card venture--a step in exiting the international credit card business (The New York Times Deal Book Aug. 15). BofA agreed to sell its interest to TD Bank Group at an undisclosed sum, and also put its remaining European card portfolio up for sale, the Times said. BofA is continuing to drive an overhaul of its credit card business because the bank has been hurt by large losses from its troubled mortgage division, the Times said …

Market News (08/15/2011)

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MADISON, Wis. (8/16/11)
* U.S. homebuilder confidence was unchanged in August from July--a sign the outlook for the housing industry remains in a slump, according to the National Association of Home Builders (NAHB)/Wells Fargo index of builder confidence (Bloomberg.com Aug. 15). The index was at 15 for a second consecutive month. Readings below 50 indicate more respondents said conditions were poor. Foreclosures, a high unemployment rate and an unsteady economy have prevented a rebound for homebuilders, Bloomberg said. Housing demand remains weak, and it doesn’t appear that builder confidence will improve much, Sean Incremona, a senior economist at 4Cast Inc. in New York, told Bloomberg. Regionally, the index showed a small increase in the Northeast was mitigated by a decline in the Midwest (Moody’s Economy.com Aug. 15). The overall index has remained nearly level for more than a year, Moody’s said ... * Global demand for U.S. stocks, bonds and other financial assets declined in June from May, according to statistics issued by the U.S. Treasury Department Monday. The decline was attributed to the battle by Congress and the White House over raising the nation’s debt limit (Bloomberg.com Aug. 15). Net long-term capital flows to the U.S. dropped to $3.7 billion in June from $24.2 billion in May. Treasury said. The Treasury’s report on long-term securities is a measure of confidence in U.S.’ economic policy, Bloomberg said. The trend is likely to continue in the next couple of months, following the high volatility seen in recent weeks as foreigners “clear the decks,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, told Bloomberg. In contrast, foreign official institutions raised their holdings of U.S. long-term debt, but cut their net holdings of government agency bonds--including those issued by Fannie Mae and Freddie Mac (Moody’s Economy.com Aug. 15) ...

News of the Competition (08/12/2011)

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MADISON, Wis. (8/15/11)
* Attorneys general in Florida and Virginia Thursday filed civil lawsuits against Bank of New York Mellon Corp. in a growing controversy about the way it processes currency trades for pension funds and other large clients (The Wall Street Journal Aug. 12). The suits allege the banks cheated pension funds in Florida and Virginia by imposing improper prices for currency trades the bank processed for the funds. The Virginia lawsuit alleges it has evidence of internal bank e-mails indicating that senior bank officials were aware of, and endorsed, a currency-trading method that harmed state pensioners, the Journal said … * The Federal Reserve Board issued an interim final rule Friday establishing regulations for savings and loan holding companies (SLHCs). The rule will take effect once it is published in the Federal Register, which is expected soon. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, supervisory and rulemaking authority for SLHCs and their nondepository subsidiaries transferred from the Office of Thrift Supervision (OTS) to the Fed July 21. Last month, the board sought comment on a notice identifying regulations previously issued by the OTS that the Federal Reserve will continue to enforce. The interim final rule issued Friday implements the transfer of those regulations. The board also issued an order Friday delegating to staff and the Reserve Banks the authority to take certain actions with respect to SLHCs. For the Order Delegating Certain Actions Relating to SLHCs, use the link …

Market News (08/12/2011)

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MADISON, Wis. (8/15/11)
* Retail sales in the U.S. increased in July because consumers made more purchases of electronics, gasoline and other merchandise, indicating that consumers are holding steady, amid high unemployment and a troubled economy (The Wall Street Journal and Bloomberg.com Aug. 12). Retail and food services sales rose 0.5% from June to $390.4 billion, the Commerce Department said Friday. June retail sales climbed a revised 0.3%--up from the department’s originally estimated 0.1% rise. The spending gain is a relief, and the upward revisions suggest the direction of consumer spending entering the third quarter is better than previously thought, Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, told Bloomberg … * U.S. consumer confidence in August fell to its lowest level since May 1980. The decline fueled worries that tepid employment gains plus volatility in the stock market from the debt-ceiling debate and the downgrading of the U.S. credit rating will cause consumers to further economize (Moody’s Economy.com and Bloomberg.com Aug. 12). The Thompson Reuters/University of Michigan consumer sentiment index fell to 54.9 for the month from 63.7 in July. The measure was forecast to drop to 62, according to analysts surveyed by Bloomberg News. An unemployment rate above 9%, the threat of default on the U.S. debt and wild stock market gyrations are causing companies to remain cautious about hiring, Bloomberg said. In the short term, people will reduce spending because consumers are fatigued and uncertain, Chris Christopher, an economist at HIS Global Insight Inc. in Lexington, Mass., told Bloomberg … * The trade gap in the U.S. widened to -$53.1 billion in June from -$50.8 billion in May, with imports dropping 0.8% and exports shrinking a larger 2.3%, according to the Bureau of Economic Analysis/Census Bureau (Moody’s Economy.com Aug. 11). The real goods balance for the month widened to -$50.9 billion from -$47.9 billion. U.S. exports decreased in back-to-back months for the first time since the economic recovery started--providing more evidence of slowing global economic expansion. Second-quarter growth now is tracking below 1%, Moody’s said …

News of the Competition (08/11/2011)

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MADISON, Wis. (8/12/11)
* The U.S. financial ratings downgrade will indirectly stimulate mortgage refinancings, predicts Saiyid Naqvi, president/CEO of PNC Mortgage (American Banker Aug. 10). Refinance applications leapt 30.4% last week and have surged 63% in the past month, according to the Mortgage Bankers Association. Many homeowners who refinanced in the past two years can benefit from doing so again, with the average 30-year fixed rate below 4.5% again, the Banker said. In the aftermath of the downgrade, the banking industry is experiencing a surge in refinancing volume because there was a large rally in Treasuries, and mortgage rates have dropped near historic lows, Naqvi told the Banker … * Because Bank of America Corp. is looking to shed assets and cut back its exposure to mortgage troubles, it has agreed to sell a portion of its problematic home-loan portfolio to government-controlled housing behemoth Fannie Mae (American Banker Aug. 9). The deal, which was finalized Aug. 5, has a purchase price of $500 million and will provide the rights to process and collect payments on a pool of 400,000 loans with an unpaid principal balance of $73 billion, said sources familiar with the matter …

Market News (08/11/2011)

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MADISON, Wis. (8/12/11)
* U.S. foreclosure filings in July fell 35%--to the lowest level in nearly four years. The drop was attributed to lenders and state and federal agencies stepping up measures to keep delinquent borrowers in their homes, according to RealtyTrac Inc. (The Washington Post Aug. 11). For the month, 212,764 properties were issued default, auction or repossession notices--the fewest in 44 months, the Irvine, Calif.-based data seller said Thursday. On a year-over-year basis, filings declined for the 10th consecutive month, decreasing 4% from June, with one in 611 households receiving a notice. However, the foreclosure decline is not the result of a healthy recovery in the housing market, but rather follows short-term interventions and delays that will prolong the current housing market troubles into 2012 and beyond, James J. Saccacio, RealtyTrac CEO, told the Post … * Initial U.S. claims for unemployment benefits dipped last week to a four-week low--a small glimmer of hope in a consistently weak U.S. labor market (The Wall Street Journal and Bloomberg.com Aug. 11). Claims fell 7,000--to a seasonally adjusted 395,000--for the week ended Aug. 6, following a revised 402,000--originally 400,000--the prior week, the Labor Department said Thursday. Last week was the first time since early April that claims dropped below the 400,000 mark--the level at which economists believe the economy is adding more jobs than it is losing, the Journal said. Although there isn’t enough panic among businesses to cut workers--which could cause further erosion of the labor market--there is some reluctance to hire more workers, Eric Green, chief market economist at TD Securities Inc., in New York, told Bloomberg. Meanwhile, continuing claims for unemployment benefits decreased to roughly 3.69 million for the week ended July 30 from about 3.75 million the prior week ... * U.S. consumer confidence last week fell to the lowest level since mid-May with high-earning citizens, and homeowners and full-time workers more pessimistic than they were earlier, according to the Bloomberg Consumer Comfort Index (Bloomberg.com Aug. 11). The index was -49.1 for the week ended Aug. 7--the second-lowest level in a year--down from -47.6 the previous week. The index was less than five points away from the record-low of -54 registered in November 2008 during the nadir of the last recession. Consumer discomfort rose when consumers realized they would have to take on a disproportionate burden of costs from the financial downgrade of the U.S. government. Another weak employment report and stock market volatility also contributed, said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. The gauge of comfort is positioned for a continued decline in coming weeks, he added …

Texas bank citing reg burdens to give up bank charter

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KINGWOOD, Texas (8/11/11)--At least one bank says a bank charter isn't all it's cracked up to be. Citing regulatory burdens, Main Street Bank, Kingwood, Texas, is planning to give up its bank charter. The 27-year-old bank plans to sell its four branches to Green Bank, a unit of Houston-based Green Bancorp Inc. Thomas Depping, Main Street's chairman, said he plans to form a new lending company, called Ascentium Capital, which will operate beyond the purview of banking regulators. It also won't have the safety net of deposit insurance (The Wall Street Journal Online Aug. 10). Although banks complain about their regulators, it is rare for a bank to close its doors unless there is an acquisition or failure. However, regulators, which were criticized as being too soft on banks before the financial crisis hit in 2008, have gone overboard in the other direction, say banking analysts interviewed in the article. Last summer, the Federal Deposit Insurance Corp. (FDIC) issued an enforcement order against Main Street Bank. The agency questioned the bank's large concentration of small-business loans, which make up nearly all its loan portfolio. Its average loan size is $100,000 for business customers with less than $1 million in annual revenue. It wrote off 1.25% of its loans as uncollectible during second quarter, said the article. In the enforcement order, Main Street Bank was required to increase its capital cushion, prohibited from substantially expanding its balance sheet, and ordered to shore up its lending guidelines with current credit information and collateral documentation. Ascentium Capital, the new entity, won't be regulated and cannot offer federal deposit insurance, but it doesn't aim to attract deposits, Depping told the Journal. He wants to increase the loan portfolio to $500 million. Depping noted that it is a lot easier to become a bank than to get rid of a bank charter. He hopes the deal will close by October.

News of the Competition (08/10/2011)

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MADSION, Wis. (8/11/11)
* Because of the Federal Open Market Committee’s decision Tuesday to keep the federal funds rate at a near-zero level for the next two years, U.S. banks will experience negative impacts for the foreseeable future, according to industry analysts and observers (American Banker Aug. 9). The banking industry will collapse if rates are kept at present levels through 2013, Chris Whalen, managing director at Lord, Whalen LLC’s Institutional Risk Analytics, told the Banker. The Fed needs to let rates go up, he added. An extended period of low interest rates will deplete earnings assets for banks--which could possibly see net-earnings margins dip below 2%, Whalen said. Other bank analysts view the Fed’s decision as resulting in the same sustained anguish for financial institutions, which have largely avoided making loans to small businesses and consumers, the Banker said … * H&R Block Inc. will pay $125 million to settle a lawsuit alleging unfair and discriminatory lending practices (American Banker Aug. 9). The suit was filed by Massachusetts against Option One Mortgage Corp.--H&R Block’s former subprime lending unit. H&R Block will pay $115 million to borrowers who took out subprime loans between 2004 and 2007 and $9.8 million to the state, according to the office of Massachusetts Attorney General Martha Coakley … * Capital One Financial Corp. announced this week it would pay about $2.6 billion to purchase the U.S. credit card business of HSBC Holdings PLC (The Wall Street Journal Aug. 10). By the close of the deal, Capital One said, it may raise up to $1.25 billion in equity to maintain about a 9.5% Tier 1 capital ratio. That would help Capital One grow its lending business at a time when consumers still are hesitant to take out new loans, the Journal said. For London-based HSBC, the sale would help the company shed businesses that no longer complement its narrower focus in the wake of the financial crisis and terminate its venture into U.S. consumer and subprime lending, the Journal said …

Market News (08/10/2011)

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MADISON, Wis. (8/11/11)
* U.S. mortgage application volume rose 21.7% for the week ended Aug. 5 from the previous week, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index increased 20.9%. The Refinance Index jumped 30.4%. The seasonally adjusted Purchase Index decreased 0.9%. The unadjusted Purchase Index dropped 1.2% and was 4.9% higher than the same week one year ago. “Amid substantial market turmoil last week, mortgage rates dropped to their lowest levels of the year, and refinance applications jumped more than 30% to their highest levels of the year,” said Mike Fratantoni, MBA vice president of research and economics. “Over the past month, refinance application volume has increased by 63%. Refinance applications for jumbo loans increased by almost 75% relative to last week. Despite these low mortgage rates, applications for home purchase have remained little changed through the summer.” For the MBA report, use the link … * Median existing-home prices declined modestly in the second quarter with 27% of metropolitan areas experiencing price gains from a year ago, while state home sales declined from second quarter 2010, according to the latest quarterly report by the National Association of Realtors (NAR). The median existing single-family home price rose in 41 out of 151 metropolitan statistical areas from the same period in 2010. That included four with double-digit increases; one unchanged and 109 areas with price declines. In the first quarter, 34 metro areas posted gains from a year earlier. Lawrence Yun, NAR chief economist, said home prices have been moderating. “Median home prices have been moving up and down in a relatively narrow range in many markets, which shows a stabilization trend,” he said. “Markets showing consistent price stability or increases are those with solid labor market conditions, such as in Washington, D.C., San Antonio or Fargo, N.D.” For the NAR report, use the link … * General Motors (GM) executives said Tuesday the U.S. automaker must continue its cost-cutting measures for several more years to ensure profitability (The New York Times Aug. 9). Within the next decade, GM intends to roughly cut in half the number of different platforms and engines in the company’s vehicle lineup, the executives told the Times. By 2018, GM will use 14 different platforms--down from 30 in 2010. A platform is the essential foundation of a vehicle. Building multiple autos on a single platform trims development and production costs, the Times said …

Fed action means no short-term rate hikes soon says CUNA

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WASHINGTON (8/10/11)--With the decision by the Federal Reserve policymakers Tuesday to hold interest rates at between 0% and 0.25% and keep the rate at "exceptionally low levels" at least through mid-2013, credit unions can't plan on increases to short-term rates anytime soon, said Credit Union National Association's chief economist. "This of course means that credit unions should not expect rising short-term interest rates in the near future," said Bill Hampel, CUNA's chief economist, after the Federal Open Market Committee (FOMC) issued its post-meeting statement Tuesday afternoon. "The Fed is putting market participants and policymakers on notice that it is fully aware that economic performance has recently been subpar, and that it will not do anything to deter growth until the economy has established much stronger legs," he told News Now. "The announcement that the Fed Funds rate will be kept at its current very low rate until at least the middle of 2013 needs to be taken with a bit of salt," Hampel said. "If the economy remains in the doldrums for the next two years, the Federal Reserve would of course leave the Fed Funds rate at low levels. "However, if the economy should gather momentum before then, with above trend growth and more rapidly falling unemployment leading to the possibility of inflation, the Fed would no doubt begin to increase rates sooner," he said, adding, "In other words, the next increase in interest rates will be very good news. It will be an indication of a strengthening economy." The FOMC met one day after the stock market slumped 635 points and three business days after Standard & Poor's downgraded the U.S. government's credit rating from AAA to AA+. That downgrade Monday spread to other entities including Fannie Mae, Freddie Mac, 10 of the 12 Federal Home Loan Banks, the Farm Credit System, and certain guaranteed notes of the Federal Deposit Insurance Corp. and the National Credit Union Administration. The committee noted that "economic growth so far this year has been considerably slower than the committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed." It also noted that "business investment in equipment and software continues to expand. Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity." "Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions. More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable," FOMC said in a statement released after today's meeting. The committee, which seeks to foster maximum employment and price stability, "now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the committee judges to be consistent with its dual mandate." It also recognized that "downside risks to the economic outlook have increased." It expects inflation to "settle, over coming quarters, at levels at or below those consistent with the committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the committee will continue to pay close attention to the evolution of inflation and inflation expectations." The FOMC kept the fed funds rate the steady "to promote the ongoing economic recovery and to help ensure that inflation, over time," and said it "currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013." It also said it will maintain its existing policy of reinvesting principal payments from its securities holdings, will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. The committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate, said the FOMC statement. Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.

News of the Competition (08/09/2011)

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MADISON, Wis. (8/10/11)
* Bank of America (BofA) has seen a $33 billion nosedive in its market value during the past week, which has resulted in worries that CEO Brian Moynihan will need to raise capital while his options to do so lessen every day (Bloomberg.com Aug. 9). In Wall Street trading from Aug. 1 through Monday, the bank’s value plummeted 34%. There are indications BofA may absorb more expenses connected to bad mortgages and that a troubled U.S. economy will curb its revenue. Earlier this year, Moynihan said repeatedly that BofA doesn’t need to raise capital--a move that would lessen the value of the stake held by current investors, Bloomberg said. Analysts who at first agreed with him now aren’t ruling out the idea, and say parts of BofA that could be sold include its Merrill Lynch units, Bloomberg said … * JPMorgan Chase and PNC are buying bank branches in Atlanta and states in the Southeast that are being hit hard by the financial crisis (American Banker Aug. 8). JPMorgan and PNC have plans in metropolitan Atlanta for retail banking, putting local stalwarts such as Synovus and SunTrust Bank on the defensive, the Banker said. If either JPMorgan or PNC is successful, it would be the first time in at least 17 years that a Northeast-based bank would be one of the 10 largest banks in Atlanta, the Banker said …

Market News (08/09/2011)

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MADISON, Wis. (8/10/11)
* Interest rates and prices consumers pay for new mortgages could rise--further slowing mortgage originations--as a result of Standard & Poor’s Corp.’s decision to lower the U.S. debt rating (American Banker Aug. 8). However, a sudden spike in rates is unlikely, with the biggest impact to the housing market related to morale, mortgage lenders and analysts told the Banker Monday. It all boils down to the psyches of consumers and they will continue to withdraw from the housing market, David Lykken, managing partner of KLS Consulting--which conducts business as Mortgage Banking Solutions--told the Banker. The U.S debt downgrade will make consumers reluctant to purchase, and there won’t be any housing growth until the economy stabilizes, Lykken added … * For the second consecutive quarter, U.S. worker productivity declined as the economic recovery remained mild and labor costs continued to increase--a trend that may not be good for future hiring (The Wall Street Journal and The New York Times Aug. 9). Nonfarm business productivity fell at a 0.3% annual rate from April through June, following a 0.6% decrease in the first quarter, the Labor Department said Tuesday. The productivity decline was a factor in pushing unit labor costs up 2.2%, following a 4.8% increase in the first quarter--the largest increase since fourth quarter 2008. Rising labor costs lessen corporate profits. And since labor is the biggest expense for most companies, they are less prone to add jobs when workers are less productive and cost more, the Times said … * The International Council of Shopping Centers (ICSC) chain store sales index recorded its second consecutive decline, dropping 0.5% for the week ended Aug. 6 (Moody’s Economy.com Aug. 9). Hot weather reportedly dampened back-to-school spending, but that was partially mitigated by sales-tax holidays in several states, ICSC said. Year-over-year growth leveled to 3.6%--the lowest level in five weeks, but still strong by post-recession standards. There was improved customer traffic at discount outlets and malls, and consumers still are spending, ICSC said ...

NEW Fed policymakers hold rates steady through mid-2013

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WASHINGTON (FILED 2:51 p.m. 8/9/11)--In their meeting today on the heels of recent credit downgrades and a volatile stock market, the Federal Reserve's key policymaking body, the Federal Open Market Committee (FOMC), kept the targeted funds interest rate steady at 0% to 0.25% and clarified that it likely will keep the rate at "exceptionally low levels" at least through mid-2013. The meeting was held today, one day after the stock market slumped 635 points and three business days after Standard & Poor's downgrade of the U.S. government's credit rating from AAA to AA+. That downgrade Monday spread to other entities including Fannie Mae, Freddie Mac, 10 of the 12 Federal Home Loan Banks, the Farm Credit System, and certain guaranteed notes of the Federal Deposit Insurance Corp. and the National Credit Union Administration. The committee noted that "economic growth so far this year has been considerably slower than the committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed." It also noted that "business investment in equipment and software continues to expand. Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity." "Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions. More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable," FOMC said in a statement released after today's meeting. The committee, which seeks to foster maximum employment and price stability, "now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the committee judges to be consistent with its dual mandate." It also recognized that "downside risks to the economic outlook have increased." It expects inflation to "settle, over coming quarters, at levels at or below those consistent with the committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the committee will continue to pay close attention to the evolution of inflation and inflation expectations." It kept the fed funds rate the steady "to promote the ongoing economic recovery and to help ensure that inflation, over time," and said it "currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013." It also said it will maintain its existing policy of reinvesting principal payments from its securities holdings, will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. The committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate, said the FOMC statement. Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.

FOMC meets today amid economic turmoil

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WASHINGTON (8/9/11)--The Federal Open Market Committee will have a lot to discuss today as the Federal Reserve's policymaking group meets to determine its next step to shore up the economy amid turmoil in the stock market caused by the downgrading of the U.S. government's credit rating. What was supposed to be a run-of-the-mill meeting announcing a largely unmoving low interest rate for the Fed Funds targeted rate has taken on added import after the downgrading of the U.S. government's credit rating Thursday, followed by the downgrading of Fannie Mae, Freddie Mac, and 10 of the 12 Federal Home Loan Banks, plus the stock market's 513-point plunge Thursday and a 635-point nosedive on Monday. FOMC committee members will be weighing not only those recent events, but also reports of a weakening manufacturing sector, which had remained strong throughout the recession, and weak gross domestic product reports. That, plus unemployment rate continuing at 9%, and rising prices, will all be in the mix of factors the Fed group must consider. The question for FOMC members is whether this is a soft patch or a sustained slump in activity, said Karen Dynan, co-director, the Brookings Institution's economic studies program (MarketWatch Aug. 8). The committee's options, according to Bloomberg and MarketWatch (Aug. 8), include:
* Prolonging its pledge to maintain record monetary stimulus by holding its nearly $2.9 trillion balance sheet steady for an "extended period"; * Replacing shorter-term securities with longer maturities to reduce rates on longer-term debt; * Holding its key interest rate near zero until a specific date; * Cutting the 0.25% interest rate it pays banks on excess reserves parked at the Fed to encourage banks to lend; * Taking a third round of quantitative easing (QE3), which most sources say is unlikely to be announced so soon after the events that have caused investors' jitters.
The committee will announce its interest rate decision today at 2:15 p.m. ET. Follow News Now for coverage of the FOMC meeting.

News of the Competition (08/08/2011)

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MADISON, Wis. (8/9/11)
* The Federal Deposit Insurance Corp. (FDIC) announced Friday the closing of two banks, bringing total bank failures so far this year to 63, compared with 157 for the entire year in 2010. The failed banks are: Bank of Shorewood, Shorewood, Ill., assumed by Heartland Bank and Trust Company, Bloomington, Ill.; and Bank of Whitman, Colfax, Wash., assumed by Columbia State Bank, Tacoma, Wash. The two closed banks held roughly $659 million in assets as of March 31. The FDIC estimated the newest failures will cost the Deposit Insurance Fund about $160 million ... * The Treasury Department announced it will distribute $253 million to 20 small banks in the most recent round of funding from the Small Business Lending Fund. Congress established the $30 billion fund last year to increase lending to small businesses from small banks (American Banker Aug. 5). The fund makes capital available to eligible community banks that have less than $10 billion in assets. The dividend the banks pay back to the federal government will decrease the more the recipient banks increase their small-business lending … * American International Group Inc. (AIG) Monday said it intends to sue Bank of America Corp. (BofA) over hundreds of mortgage-backed securities as it attempts to recover billions it lost on mortgage investments (The New York Times and The Wall Street Journal Aug. 8). AIG also plans to object to BofA’s proposed settlement with other mortgage-bond investors, the Journal said. The suit looks to recoup more than $10 billion in losses on $28 billion of investments--possibly the biggest mortgage-security-related action filed by a single investor, the Times said. BofA hit heavy losses during trading, losing 20% of its shares (theatlanticwire.com Aug. 8)… * First Financial Bancorp in Cincinnati said it will raise its dividend to equal 100% of its quarterly earnings (American Banker Aug. 5). The bank said it has all the capital it requires and intends to pay out its earnings each quarter until it finds a better way to use the money. Although First Financial is the first community bank to do this, it likely won’t be the last, the Banker said. Robust companies are raising substantial amounts of capital without good plans to use it--a situation that should result in higher dividends, special dividends and stock repurchase programs, the Banker said …

Market News (08/08/2011)

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MADISON, Wis. (8/9/11)
* The U.S. is not apt to regain its top AAA credit rating soon--even though the U.S. dollar still is the main reserve currency worldwide, according to Standard & Poor’s (S&P) analysts David Beers and John Chambers (Bloomberg.com Aug. 8). S&P dropped the U.S. to AA+ from AAA Friday, while keeping the outlook at “negative,” citing the failure of the political and legislative processes to reduce record deficits. Because of polarizing views about fiscal policy and the current nature of the debate in the U.S., S&P said it doesn’t see any immediate remedy for the downgrade on the horizon. S&P also downgraded the senior issue ratings Fannie Mae and Freddie Mac Monday to AA+ from AAA, in connection with its downgrade of the U.S. government (MarketWatch Aug. 8). S&P said the downgrades of Fannie and Freddie are related to their direct reliance on the U.S. government. S&P also downgraded 10 of 12 Federal Home Loan Banks (The Wall Street Journal Aug. 8). In a related matter, if the U.S. economy slips back into another recession, it could be worse than the last one, many economists warn (The New York Times Aug. 7). The reason for that prognostication is that the main measures of economic health--incomes, jobs, output and industrial production--are worse today than they were at the onset of the last recession in December 2007, the Times said. Because the U.S. has not yet made up for the last recession, a new recession would be disastrous, Conrad DeQuadros, senior economist at RDQ Economics, told the Times ... * U.S. small-business confidence has declined for four consecutive months--although the declines have moderated, according to National Federation of Independent Business index (Moody’s Economy.com July 12). The index dropped to 90.8 in June from 90.9 in May. Although the June decrease was slight, it brought the cumulative decline since March to four points. Even though hiring plans increased in June, small businesses became more negative based on the prospects of the economy, Moody’s said. In the second half of 2011, Moody’s said it anticipates that real gross domestic product will increase roughly 4%--nearly double the pace of the first half of the year …

Consumers credit for June up 4.25 down slightly for CUs

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WASHINGTON (8/8/11)--Consumer credit increased at a 4.25% annual rate in June to $2.446 trillion--the largest increase in nearly four years, according to the Federal Reserve's Consumer Credit report released Friday afternoon. At credit unions, members borrowed $220.6 billion, down $8 million from May's $221.4 billion. The $15.53 billion increase in consumers' overall borrowing indicated that consumers were willing to keep borrowing despite the tight job market (Reuters Aug. 5). It was the largest single-month gain since August, 2007, when borrowing bumped up $17.29 billion. The increase also was higher than the $5 billion that economists surveyed by Dow Jones had forecast (Dow Jones Newswires (Aug. 5). Credit card debt, which makes up most of revolving debt, for June totaled $798.3 billion, an increase of $5.2 billion from $793.1 billion in May. In May the gain had been $3.32 billion. For credit unions, members borrowed $35.8 million in June, a $2 million increase from $35.6 million they borrowed in May. The increase was the largest hike in revolving debt since March 2008, said Reuters. Nonrevolving credit, which includes student loans, auto loans and mobile home loans but not mortgage or other real-estate secured loans, also grew--to nearly $1.648 trillion or $10.3 billion more than May's nearly $1.638 trillion. Nonrevolving credit at credit unions totaled $184.9 billion, up from $185.8 billion in May. The Fed's data makes no analysis on why credit card spending increased. It is not known whether consumers used their cards out of necessity to pay bills or whether they increased spending as a sign of confidence in the economy. According to CreditCards.com (Aug. 5), some analysts said that credit card spending rose because financial institutions are making more credit available. Also prices are increasing and consumers have little choice but to spend more.

News of the Competition (08/05/2011)

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MADISON, Wis. (8/8/11)
* U.S. bank stocks nosedived Thursday because worries about a double-dip recession caused financial markets to tumble (American Banker Aug. 4). The 24 banks that constitute the KBW Bank Index--including Bank of America Corp, Bank of New York Mellon, Comerica, and People’s United Financial Inc.--closed at or close to their 52-week lows. Overall, the KBW Bank Index fell 5.3% to close at 42.34--three points above its 52-week low. The broader KBW Regional Bank Index dropped 4.6% to close at 47.70 … * Bank of New York Mellon Corp. took a highly unusual step Thursday, telling its large clients it will charge them to hold their cash (The Wall Street Journal Aug. 5). The move marks an austere new phase in the stubbornly long worldwide financial crisis in which U.S. depositors will have to pay to keep large blocks of money in a bank, the Journal said. The bank said customers who have deposited more than $50 million into their accounts since the end of July will have to pay a minimum annual fee of at least 0.13% of the excess deposits. If the one-month Treasury yield edges below zero, the fee would increase …

Market News (08/05/2011)

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MADISON, Wis. (8/8/11)
* The U.S. economy added more jobs in July than expected, and the unemployment rate slid down, allaying fears that the U.S. economy is gearing down to a halt and a new recession may be on the horizon (The Wall Street Journal and Bloomberg.com Aug. 5). Nonfarm payrolls increased by 117,000, following a 46,000 gain in June that was higher than originally estimated, the Labor Department said Friday. Although the July jobs report provides some temporary relief and is better than the previous two months, the relief will likely be short-lived, because consumers will refocus on what they think the future holds, Nigel Gault, chief U.S. economist at IHS Global Insight told The New York Times (Aug. 5). There may need to be an acceleration in job creation to further strengthen consumer spending--which increased in the second quarter at the slowest pace in two years, Bloomberg said. In a related matter, the U.S. Monster employment index--which measures online help wanted ads--fell by two points in July to 144 from 146 in June (Moody’s Economy.com Aug. 5) ... * U.S. factory orders for manufactured goods dropped 0.8% in June, while shipments of durable goods climbed 0.5%, according to the U.S. Census Bureau (Moody’s Economy.com Aug. 3). Unfilled orders increased 0.3%, while inventories grew for the 14th consecutive month--at 0.2%, although at a slower pace than in May. Core capital goods orders increased 0.4%, following a revised 1.9% gain in May. Although the overall report was weak, it was not as bad as anticipated. The report indicated a slowing--but not an outright weakness--in second-quarter manufacturing, Moody’s said …

News of the Competition (08/04/2011)

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MADISON, Wis. (8/5/11)
* In the wake of the Dodd-Frank financial reform act, Visa made a pre-emptive move in pricing, but MasterCard held off (American Banker Aug. 3). After Visa changed its fees across the board last week, MasterCard said Wednesday it does not plan any sweeping changes to interchange fees--fees that merchants and their financial institutions pay for processing card transactions. Regarding its approach to opportunities in signature and personal identification number debit, MasterCard will be surgical and thoughtful, Chris McWilton, president of the payment network’s U.S. markets, said on a Wednesday earnings conference call. MasterCard has no reason to redesign its pricing because under new federal regulations, it is apt to gain market share simply by its presence in the market, the Banker said … * General Motors’ (GM) second-quarter earnings rose 89% from a year ago to $2.5 billion, the Detroit automaker said Thursday (The New York Times Aug. 4). GM’s reported revenue for the second quarter rose 19% to $39.4 billion, said the biggest U.S. automaker. The good showing was engendered by robust sales in GM’s core North American market--where it earned $2.2 billion--up from second-quarter 2010 earnings of $1.6 billion, the Times said …

Market News (08/04/2011)

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MADISON, Wis. (8/5/11)
* Initial claims for U.S. unemployment benefits remained flat across the board, indicating limited improvement in the labor market (The Wall Street Journal and Bloomberg.com Aug. 4). Claims decreased by 1,000--to a seasonally adjusted 400,000--for the week ended July 30, following a 21,000 drop the previous week, the Labor Department said Thursday. Once weekly claims fall below the 400,000 level, economists generally agree the economy is adding more jobs than it is losing, the Journal said. That hasn’t happened since early April. Before companies gain enough confidence to increase hiring--which has slowed in the past three months--a further reduction in the pace of job cuts may be needed, Bloomberg said. Meanwhile, continuing claims for unemployment benefits for the week ended July 23 rose to 3.73 million from 3.72 million the prior week (Moody’s Economy.com Aug. 4) ... * U.S. consumer confidence fell last week to the lowest level in more than two months, driven by increasing dissatisfaction among high earners and women, according to the Bloomberg Consumer Comfort Index (Bloomberg.com Aug. 4). The index declined to -47.6 for the week ended July 31--the lowest level since May--compared with a -46.8 the previous week. Women’s confidence decreased to the lowest level since October 2009, while U.S. consumers whose incomes were more than $100,000 per year showed the most negative sentiment since November 2009. A stagnant job market, political squabbling about raising the debt ceiling and the largest one-week drop in the Standard & Poor’s 500 Index in a year likely dampened consumers’ moods, Bloomberg said … * U.S. mortgage rates for 30-year loans nosedived to the lowest level in more than eight months amid the country’s economic recovery, showing indications of stalling (Bloomberg.com Aug. 4). The average 30-year, fixed-loan rate fell to 4.39% in the week ended Aug. 4 from 4.55% the prior week, according to Freddie Mac. The average 15-year, fixed-loan rate dropped to a record-low 3.54% from 3.66 %, Freddie said. The decline came after yields slipped Wednesday for 10-year Treasury notes to the lowest level since November. The decline is based on the perception that the U.S. economy is slowing …

Market News (08/03/2011)

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MADISON, Wis. (8/4/11)
* Private U.S. companies added 114,000 workers--more than expected--to payrolls in July, following a revised 145,000 gain in June, according to a report issued Wednesday by ADP Employer Services (Bloomberg.com and The Wall Street Journal Aug. 3). Economists had forecast a gain of 100,000 in July, according to a Bloomberg News survey. A slowdown in hiring portends that consumers will not likely increase their spending--which constitutes 70% of the U.S. economy--thereby hampering an economic recovery, Bloomberg said. In a related matter, U.S. job cuts rose to 66,414 in July--significantly above June’s total of 41,432, and nearly 60% higher than the year-ago total, according to the Challenger Report issued by Challenger Gray and Christmas Inc. (Moody’s Economy.com Aug. 3) … * U.S. mortgage loan applications increased 7.1% for the week ended July 29 from one week earlier, according to the Market Composite Index, part of the Weekly Mortgage Applications Survey released Wednesday by the Mortgage Bankers Association (MBA). On an unadjusted basis, the index rose 7%. The Refinance Index jumped 7.8%. The seasonally adjusted Purchase Index went up 5.1%. The unadjusted Purchase Index climbed 5.2%, and was 5.9% higher than the same week one year ago. “Treasury rates plummeted more than 20 basis points last week as all eyes were focused on the debt ceiling negotiations in Washington, and economic data depicted much slower-than-anticipated economic growth,” said Michael Fratantoni, MBA vice president of research and economics. “Mortgage rates fell, with the rate on 15-year mortgages reaching a new low in our survey. Refinance application volume increased, but even though 30-year mortgage rates are back below 4.5%, the refinance index is still almost 30% below last year’s level. Factors such as negative equity and a weak job market continue to constrain borrowers. Purchase activity increased off of a low base, returning to levels of one month ago, but remains weak by historical standards.” For the MBA report, use the link … * The U.S. service (nonmanufacturing) industry grew in July at the slowest pace since February 2010 because orders and employment waned, indicating the largest component of the U.S. economy had scant momentum heading into the second half of the year, according to the Institute for Supply Management’s index of nonmanufacturing businesses (Bloomberg.com Aug. 3). The index--which covers 90% of the economy--fell to 52.7 from 53.3 in June. Readings above 50 indicate expansion. The economy slowed in July from the second quarter, which is not good news considering how weak second-quarter growth was, Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, told Bloomberg. A further leveling of orders is not a good sign for the next few months either, he added ...

News of the Competition (08/03/2011)

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MADISON, Wis. (8/4/11)
* State and federal prosecutors are negotiating with Bank of America (BofA) to reach a deal that would forgive some BofA liability related to past mortgage abuses in exchange for fines that would expand a relief program to help struggling homeowners, according to three sources familiar with the matter (Huffington Post Aug. 2). The negotiations are separate from ongoing discussion among the five biggest U.S. mortgage handlers and the Department of Justice, the Department of Housing and Urban Development and all 50 state attorneys general, the publication said … * Small community banks are wary of the costs associated with any type of potential mortgage-servicing national standards (American Banker Aug 2). The U.S. Senate Banking Committee is considering three bills that would put in place national servicing standards. Those rules could require servicers to address conflicts of interest between loan servicers and the investors who own the loans, prohibit servicers from proceeding with a foreclosure while working with the homeowner on a loan modification, and establish a single point of contact with borrowers. Panel Democrats are looking to combine the three bills into a single piece of legislation and quickly pass it. If it clears the Senate, it probably will face stiff opposition in the Republican-controlled House, the Banker said ... * Small banks in New York City hope to see big financial returns from commercial loans (American Banker Aug. 2). Because the Northeast wasn’t as negatively impacted by the recession as other parts of the U.S., small banks operating in a market such as Manhattan, which is replete with small businesses, are seeing a better market than a rural area would, Mark Fitzgibbon, an analyst at Sandler O’Neill & Partners LP, told the Banker. Executives at two small New York banks told the publication that much of their second-quarter loan growth came from new customers who ended relationships with larger banks …

News of the Competition (08/02/2011)

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MADISON, Wis. (8/3/11)
* U.S. homeowners’ overall satisfaction with primary mortgage servicers has significantly eroded from 2010 because frustration is growing among homeowners who originated their mortgages during the peak of the housing boom, according to a J.D. Power and Associates 2011 U.S. Primary Mortgage Servicer Satisfaction Study released Tuesday. Also, brand perceptions of mortgage-servicing companies have declined as a result of negative media coverage of reported abuses committed against homeowners by mortgage servicers. The study found that overall satisfaction with primary mortgage servicers has declined to 718 on a 1,000-point scale, down 29 points from 747 in 2010. The study measures customer satisfaction with four areas of the mortgage-servicing experience: billing and payment process; escrow account administration; website; and phone contact. Satisfaction declined across all four factors. The study also noted that friendly service and reliability are the most important aspects of overall brand image for mortgage servicers. Those key aspects also are the two measures that have declined most notably in 2011, compared with 2010, the study said … * The Department of Justice has filed a lawsuit against MDR Mortgage and founder and President Robert Luce for the alleged misrepresentations of Department of Housing and Urban Development-insured loans (American Banker Aug. 2). The suit, filed in the U.S. District Court for the Northern District of Illinois, seeks recovery under the False Claims Act and civil penalties under the Financial Institutions Reform, Recovery and Enforcement Act. Between April 2005 and October 2008, Luce and MDR employees originated more than 90 Federal Housing Administration-insured loans that subsequently defaulted, necessitating government repayment of more than $1.6 million in insurance claims to holders of defaulted mortgagee notes, the Banker said … * A federal jury in New Mexico Friday awarded a woman $1.26 million after she sued a law firm that twice attempted to garnish her wages for a debt she did not owe (American Banker Aug. 2). The case against The Law Offices of Farrell & Sandlin originated in late 2006 when Target National Bank, a co-defendant in the case, assigned Lucinda Yazzie’s delinquent credit card account to Farrell & Sandlin. Yazzie told the law firm that she had never had a Target credit card and that she often received calls from creditors trying to find another person in her area with the same name, according to an article in the Albuquerque Journal. It was found, through the legal process, that a former Farrell & Sandlin employee, shortly after receiving the account, changed the Social Security number in the company’s system to Yazzie’s ...

Market News (08/02/2011)

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MADISON, Wis. (8/3/11)
* U.S. consumer spending in June fell for the first time in nearly two years, while consumer savings increased and personal incomes grew by the smallest amount in nine months. The statistics indicate that a slump in job hiring is harming household confidence and the economy is barely growing (The New York Times and Bloomberg.com Aug. 2). Consumer spending decreased 0.2% in June, following a 0.1% gain in May, the Commerce Department said Tuesday. Declining food and energy prices--which had surged in recent months--caused some of the drop. When those items are excluded, consumer spending was flat, the Times said. Also, personal income increased 0.1%--the poorest showing since September, reflecting weak hiring in the spring, while personal savings climbed to 5.4% of after-tax incomes--the highest level since August 2010. Economists now are more concerned that any economic rebound will be less than previously expected because of a recent slew of weak economic news, Paul Dales, senior U.S. economist at Capital Economics told the Times … * Chain store sales in the U.S. ended a five-week string of gains with a 0.3% decrease for the week ended July 30, according to the International Council of Shopping Centers (ICSC) chain store sales index (Moody’s Economy.com Aug. 2). The decline returned the index to its level of two weeks ago. Although year-over-year growth slightly moderated, it remained strong--as measured by post-recession standards--at 4%. Retailers offering discounts are seeing improved customer traffic, ICSC said. Overall, consumers still are spending, ICSC concluded … * Casting doubt on an economic rebound in 2011, U.S. auto sales have stalled because continuing unemployment and stricter lending standards are dissuading buyers (Bloomberg.com Aug. 1). Light-vehicle deliveries for July were at a 12.2 million seasonally adjusted rate, trailing the 12.5-million rate in the first half of the year. The auto industry may lose 1.5 million in projected auto sales this year, according to consultant AlixPartners LLP. Because the economy is not bouncing back as quickly as expected, the drag could last beyond 2011, AlixPartners said. Therefore, a return to average annual sales of 16.8 million vehicles seen from 2000 through 2007 may be out of reach, Bloomberg said …

News of the Competition (08/01/2011)

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MADISON, Wis. (8/2/11)
* The Federal Deposit Insurance Corp. (FDIC) announced Friday the closing of three banks, bringing total bank failures so far this year to 61, compared with 157 for the entire year in 2010. The failed banks are: Integra Bank, N.A., Evansville, Ind., assumed by Old National Bank, Evansville, Ind.; BankMeridian, N.A., Columbia, S.C., assumed by SCBT, N.A., Orangeburg, S.C.; and Virginia Business Bank, Richmond, Va., assumed by Xenith Bank, Richmond, Va. The three closed banks held roughly $2.54 billion in assets as of March 31. The FDIC estimated the newest failures will cost the Deposit Insurance Fund about $253 million ... * Online banking in the U.S. is booming, according to recent research conducted by New York-based Novarica. It found that 38% of the country’s population use online banking services, and the percentage of people who prefer to use the online channel for basic banking transactions has grown to roughly 30% (American Banker July 29). About 70% of survey respondents said online banking is the go-to destination when researching products, with 68% saying they go online to monitor account balances, according to Novarica. Also, 60% of respondents said they prefer to handle their funds online--more than any other channel … * Discover Financial Services’ deal to purchase $1.1 billion in Allstate Corp. banking deposits has been terminated, Allstate said in a quarterly earnings statement filed with the Securities and Exchange Commission Monday (American Banker Aug. 1). Discover was looking to diversify beyond credit cards, the Banker said. Allstate is continuing plans to end its banking operations, and it expects to get regulatory approval to cancel its banking charter by the end of the year, the property and life insurer said in a filing …

Market News (08/01/2011)

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MADISON, Wis. (8/2/11)
* U.S. demand deposits have surged while consumers stockpile precautionary cash as the federal government approaches the debt ceiling and a possible default (American Banker July 29). Demand deposits increased 17% over the previous year--to roughly $1 trillion in June--according to Federal Reserve data. Total deposits increased more than 7%--to roughly $7.5 trillion--excluding accounts with balances above $100,000. A key factor in deposit growth is that in an environment of extremely low interest rates, retail money market funds have difficulty competing with savings accounts--which offer deposit insurance protection, the Banker said ... * Business sentiment worldwide geared down this summer, with confidence now consonant with a global economy that is growing at the low end of its potential, according to Moody’s Analytics Survey of Business Confidence (Moody’s Economy.com Aug. 1). However, for the week ended July 29, sentiment halted its decline and rose slightly. Hiring intentions took the biggest hit, falling to their lowest level since 2010, Moody’s said. Consonant with that, demand for office space has significantly eroded. Sentiment has declined the most in the U.S. and Japan, and most recently in Europe and South America. It is noteworthy that most of the decrease is because of a lower percentage of positive responses to survey questions rather than to an increase in negative responses, Moody’s said ... * U.S. manufacturing in July grew at the slowest pace in two years, a sign that the sector that has been pushing the economic expansion is beginning to weaken, while price pressures further eased, according to the Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (Bloomberg.com and The Wall Street Journal Aug. 1). The index dropped to 50.9 in July from 55.3 in June. Readings above 50 indicate growth. The ISM report indicates the manufacturing sector began the third quarter in a down mode, perhaps because U.S. businesses were waiting to see how the federal debt debate concluded, the Journal said. In an indication that economic growth may be restrained, factory orders shrank for the first time since June 2009, and backlogs decreased for a third consecutive month, Bloomberg said …